BusinessCzech export promotion to Russia could rise but Ukraine support still
stalled

Mixed signals have been sent by the West to Russia and Ukraine during the
recent crisis and no more so over trade and business relations. Strangely
enough, crucial Czech state support for trade with Russia is being
maintained but that to Ukraine remains on hold.

Photo: athewma / freeimages
The two main protagonists in the ongoing crisis, Russia and Ukraine have
been given different treatment regarding the business terms they are
offered. That holds good for most of the European Union including the Czech
Republic.

Politics apart, the simple message is that two-way business with Russia is
too valuable to sacrifice while that with Ukraine is marginal at best.
Western and Czech exposure to possible Russian default on loans and
cancelled contracts is far greater than anything threatened in Ukraine.

Czech state export insurer EGAP announced at the height of Ukraine’s
conflict at the end of February that it was halting all new activity
helping to cover the risks of doing business in the country until further
notice. No announcement has been made since that the situation has changed
with Ukraine still listed by the export insurer as a number seven risk
country, the worst possible rating.

Basically, EGAP works hand in hand with the Czech Export Bank, which
provides loans to customers in high risk countries which help them buy
Czech services or products. EGAP provides the insurance safety net in case
the projects and loans start turning sour and defaults start to occur.

On Ukraine, EGAP general manager Jan Procházka said in an interview with
the news server Česka Pozice published on May 26 said that it is senseless
to send money to a country whose very own prime minister admitted it was
technically bankrupt and where the cash would be lost. When stability
returned the situation could change, he added.

Russia, however, is a much lower risk proposal. It is evaluated at three
on the seven point rating and Czech state aid to smooth business there is
still continuing. Indeed, in the interview Procházka pointed out that the
current slowdown in the Russian economy might limit the opportunities on
that market foreign companies but that might, on the other hand, spark an
upturn in interest from Czech companies in getting some of their potential
risks covered by the state export insurer. It is still too early to say how
the situation will evolve, he added.

Up till now EGAP has covered 80 billion crowns worth of Czech business
with Russia although some of the projects have turned sour. Last year
Russia took first place in the countries helped by the Czech state
insurance company with the country accounting for 19 percent of its total
activity. Azerbaijan followed a close second with 18 percent of business.

EGAP’s export credits totalled a record 2.7 billion crowns last year.
Russia accounted for around 5.0% of Czech exports in 2012 and was the Czech
Republic’s fifth most important trading partner. Czech exports to Ukraine
account for less than 1.0% of outward trade flows.